GST and its implications - Gujrat PCS Exam Notes

What is GST?
Goods and Services Tax — GST — is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.
Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.
The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.
Experts say that GST is likely to improve tax collections and boost India’s economic development by breaking tax barriers between States and integrating India through a uniform tax rate.
What are the benefits of GST?
Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.
It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.
How will it benefit the Centre and the States?
It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.
What are the benefits of GST for individuals and companies?
In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.
What type of GST is proposed for India?
India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.
All goods and services, barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and services.
Which other nations have a similar tax structure?
Almost 140 countries have already implemented the GST. Most of the countries have a unified GST system. Brazil and Canada follow a dual system where GST is levied by both the Union and the State governments.
France was the first country to introduce GST system in 1954.
Will this be an extra tax?
It will not be an additional tax. CGST will include central excise duty (Cenvat), service tax, and additional duties of customs at the central level; and value-added tax, central sales tax, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax at the State level.
What will be the rate of GST?
The combined GST rate is being discussed by government. The rate is expected around 14-16 per cent. After the total GST rate is arrived at, the States and the Centre will decide on the CGST and SGST rates.
Currently, services are taxed at 10 per cent and the combined charge indirect taxes on most goods is around 20 per cent.
Will goods and services cost more after this tax comes into force?
The prices are expected to fall in the long term as dealers might pass on the benefits of the reduced tax to consumers.
Why are some States against GST; will they lose money?
The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and the administrative infrastructure will not be ready by April 2010 to implement GST. States have sought assurances that their existing revenues will be protected.
The central government has offered to compensate States in case of a loss in revenues.
Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government believes that dual GST will lead to better revenue collection for States.
However, backward and less-developed States could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of goods and services will rise.
How will GST be implemented?
The empowered committee is likely to finalize the details of GST by August. But States have to sort out several issues like agreement on GST rates, constitutional amendments and holding talks with industry associations. Experts feel the drafting of legislation and the implementation of law will take time.
What are the items on which GST may not be applied?
Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

GST council is a constitutional body which consists of Finance minister as chairman, Union minister of state in charge of revenue of finance, Minister of finance or any other minister nominated by each state government to GST council. It make recommendations on following issues:

Taxes, cesses, and surcharges to be included under the GST
Goods and services which will be subject to, or exempt from GST
Rates of GST (5%, 12%, 18%, 28%)
GST laws, principles of levy, apportionment of IGST and principles associated with place of
supply
Special provisions with respect to the eight north eastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand; and other associated matters.
Other matters pertaining to the implementation and regulation of GST in India.
Every decision of the GST Council shall be taken at a meeting by a majority of not less than
3/4th of the weighted votes of the Members present and voting.
The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and
the votes of all the State Governments taken together shall have a weightage of 2/3rd of
the total votes cast in that meeting.
One half of the total number of members of the GST Council shall constitute the quorum at its meetings.

GST as a reform has a far reaching consequences. MSME sector is going to get benefit in the long run. But in the short run as per CII, the MSME sector is facing following issues:

A complicated compliances system and a rigid taxation regime place added limits on the growth potential of small enterprises.
Uncertainty in claiming input tax credit.
Multiple registration and returns.
Transfer of tax liability.
the transference of responsibility and liability of tax remittance to the customers of a supplier.
Reduction in the working capital for MSME.

The benefits of GST will be lost on Indian industry if it is not accompanied by a set of simple procedures to reduce the compliance burden on businesses, especially MSMEs. The Government must also take sustained initiatives in order to educate MSMEs about the various provisions and compliance requirements under GST for MSMEs through seminars, conferences, training sessions, etc. This will go a long way in enhancing their preparedness for swiftly transitioning to this new tax regime, and avail of its various benefits on the Indian industry.

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